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Hedge Funds Are Piling Into Proto Labs Inc (PRLB)

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  • PRLB

In this article you are going to find out whether hedge funds think Proto Labs Inc (NYSE:PRLB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Proto Labs Inc (NYSE:PRLB) a buy right now? Prominent investors were in a bullish mood. The number of bullish hedge fund positions inched up by 1 in recent months. Proto Labs Inc (NYSE:PRLB) was in 19 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PRLB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In today’s marketplace there are a lot of metrics stock market investors can use to grade stocks. A pair of the less known metrics are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the elite money managers can outperform their index-focused peers by a very impressive margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

John Overdeck of Two Sigma
John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

Keeping this in mind let's take a gander at the latest hedge fund action regarding Proto Labs Inc (NYSE:PRLB).

Do Hedge Funds Think PRLB Is A Good Stock To Buy Now?

At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in PRLB a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, ARK Investment Management, managed by Catherine D. Wood, holds the largest position in Proto Labs Inc (NYSE:PRLB). ARK Investment Management has a $278.2 million position in the stock, comprising 0.5% of its 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $18 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish consist of D. E. Shaw's D E Shaw, Renaissance Technologies and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position ARK Investment Management allocated the biggest weight to Proto Labs Inc (NYSE:PRLB), around 0.52% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, dishing out 0.33 percent of its 13F equity portfolio to PRLB.

Consequently, key money managers have jumped into Proto Labs Inc (NYSE:PRLB) headfirst. D E Shaw, managed by D. E. Shaw, created the most outsized call position in Proto Labs Inc (NYSE:PRLB). D E Shaw had $1.8 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also made a $0.8 million investment in the stock during the quarter. The other funds with brand new PRLB positions are Karim Abbadi and Edward McBride's Centiva Capital, Jinghua Yan's TwinBeech Capital, and David Costen Haley's HBK Investments.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Proto Labs Inc (NYSE:PRLB) but similarly valued. We will take a look at Tri Pointe Homes, Inc. (NYSE:TPH), Sanmina Corporation (NASDAQ:SANM), Arbor Realty Trust, Inc. (NYSE:ABR), Axsome Therapeutics, Inc. (NASDAQ:AXSM), Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), Micro Focus Intl PLC (NYSE:MFGP), and The Duckhorn Portfolio, Inc. (NYSE:NAPA). All of these stocks' market caps are closest to PRLB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TPH,24,153445,-2 SANM,21,128951,5 ABR,18,109314,-3 AXSM,17,430244,0 SHI,5,13771,1 MFGP,7,13496,0 NAPA,16,120355,-2 Average,15.4,138511,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $361 million in PRLB's case. Tri Pointe Homes, Inc. (NYSE:TPH) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is the least popular one with only 5 bullish hedge fund positions. Proto Labs Inc (NYSE:PRLB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PRLB is 72.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately PRLB wasn't nearly as popular as these 5 stocks and hedge funds that were betting on PRLB were disappointed as the stock returned -22.2% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.